India's 2013 gold imports seen at 550 tonnes

Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh May 8, 2012.

REUTERS - India's gold imports may fall to 550 tonnes next year from a peak of 967 tonnes in 2011, the head of a leading trade body said, after a drop that could be as steep as 45 percent this year as high inflation and prices bite into disposable incomes.

India's 2011 imports put it ahead of China as the world's largest gold buyer, but they slid over 56 percent in the second quarter of this year after New Delhi hiked import duties. Overall first-half imports fell 20 percent.

"The demand (imports) for next year is expected to be about 550 tonnes (and) may drop further if there is an increase in customs duty," Mohit Kamboj, the newly elected president of the Bombay Bullion Association, told Reuters Gold Forum on Tuesday.

He added that imports this year could be down by 42-45 percent from 2011 to around 532 tonnes.

Kamboj said imports might stem declines at around 20 percent in the current quarter of 2012 as demand in the peak festival and wedding season prevents a larger fall.

The import duty combined with high global prices and a weak rupee, which made domestic gold even more expensive, prompted Indians to take to recycling old jewellery, leading to a slump in imports which had previously supplied most of the demand.

New Delhi wants to curb gold imports to $38 billion in the current fiscal year from $58 billion in 2011/12 as it seeks to rein in its current account deficit and encourage money tied up in gold back into the economy.

Kamboj, elected as the new president in October, doesn't see any further import duty hike in the next budget, likely to be in February 2013.

"Normally the government does not take hard decisions when the elections are near. If the budget is populist based on elections then I do not see any increase in duty in the next budget," Kamboj said. The next general election is due in 2014.

Kamboj said he did not think Indians, whose love affair with gold goes back centuries, would switch to other investments.

"In India, only a small percentage of people understand and invest in stocks and shares. Most of the people are not highly educated and still believe gold is the better option," Kamboj said

Most Indians, who have little access to a bank account, depend on the gold for savings, which the government has dubbed as a dead investment.

(Editing by Jo Winterbottom and Jane Baird)